For Sale: Big South Korean Company, Workers Chained To The Door

Militant unions may scare off investors and deepen Korea's crisis

It was a chaotic scene at Kia Motors Corp. headquarters in Seoul. In mid-April, angry workers chained themselves to the doors for three days to lock the company's new chairman, Yoo Chong Yul, out of his office. The nearly 14,000 unionized employees wanted Yoo, a court-appointed administrator, to assure them that the company would not be sold off, even though it was put in receivership on Apr. 15. Yoo had the power to fire Kia President Park Je Hyuk, but he could not enter his own office--not until he told the union that he did not intend to seek a foreign partner. Nonetheless, Yoo may have no choice: Saving the carmaker without an infusion of foreign funds may be all but impossible.

Companies such as Kia desperately need to restructure and even accept foreign ownership if Korea is to recover from its crisis. But union militancy threatens to block any such changes and scare away potential investors. Worse, social stability will be jeopardized if union members take to the streets and are joined by the newly jobless. "Foreign investors are taking a wait-and-see attitude about Korea," says Bae Ie Dong of the Federation of Korean Industries. "Potential labor unrest is one of their most serious concerns."

How President Kim Dae Jung handles the labor issue may be the biggest test of his leadership since he was inaugurated in February. Yet Kim seems unsure which direction to take. He talks of streamlining the overstretched conglomerates, or chaebol--which means layoffs. But he also gives top priority to limiting unemployment. "There seems to be a lack of consensus within the government," adds Rho Boo Ho, a management expert at Sogang University.

As policymakers dither, the new leadership of the militant Korean Confederation of Trade Unions (KCTU), one of the country's two main labor groups, has made clear it will not honor an agreement it made in February to allow layoffs. KCTU head Lee Kap Yong accuses the government and employers of forcing workers to take the brunt of the pain while the chaebol drag their feet. "We need new negotiations to protect our rights," Lee declares.

NO DICE. As the unions grow restive, at least one foreign investor has walked away from the tumult. In early April, Israeli tool manufacturer Iscar withdrew from negotiations to purchase Korea Tungsten Co. for $150 million, citing worries over hard-line union activities. On hearing news of the impending deal, the union at the company--Korea's largest producer of tungsten-related products--went on strike for a week, demanding job security and a 20% share of the sale price as "compensation." The proposed sale was part of a restructuring plan by Keopyung Group, Korea's 28th-largest chaebol, which wants to sell the profitable unit along with other affiliates. The union has now agreed to be more flexible on the compensation issue, and Iscar may rebid.

The unions threaten to rock the larger chaebol, too. At Hyundai Motor Co., the country's largest carmaker, tension is rising after management suggested it might have to cut 30% of its 35,000 factory workers because of plunging sales. The union, affiliated with the 520,000-member KCTU, plans to launch a full-scale strike if management goes ahead with layoffs. Unionists say they are willing to cooperate with cost-saving steps such as reducing work hours. But they insist the government renegotiate with the International Monetary Fund to make layoffs more difficult. Ending lifetime employment guarantees was one of the reforms mandated by the $60 billion IMF bailout package. "Unlike in the U.S. or Europe, no social safety net exists in Korea," says Hyundai union leader Kim Kwon Soo. "Securing jobs is a life-and-death fight for us."

In the end, the rebellious workers may still see their jobs disappear. Chaebol that are drowning in debt will have to close factories or at least shrink them drastically, strikes or no strikes. Korea's reforms are reaching the explosive stage. Only speedy and skillful maneuvers by President Kim can avert a potential catastrophe.

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